Texas AG files potential $40M suit against Conn's

David Yates May 28, 2009, 9:47am


AUSTIN, Texas (Legal Newsline)-Swayed by the 2,000-plus service warranty complaints levied against a retailer, Texas Attorney General Greg Abbott has filed a potential $40 million suit against Conn's Appliances.

Abbott filed the suit May 28 in Harris County, charging Conn's with failing to honor product warranties, misleading customers about the nature of its products, false advertising and other violations of the Texas Deceptive Trade Practices Act.

According to the state's enforcement action -- and information contained in more than 2,000 customer complaints -- the defendant unlawfully relied on aggressive and deceptive sales tactics to increase its extended service warranty sales for consumer appliances, electronics and other products.

Court papers show Abbott is seeking up to $20,000 for each complaint, which if obtained, would attach a $40 million price tag to the suit.

"Plaintiff seeks civil penalties up to $20,000 for each act or practice calculated to acquire or deprive money or other property from a consumer in violation of the DTPA," the suit states. "In addition ... plaintiff seeks reasonable attorney's fees."

The attorney general is also seeking to impose a $250,000 penalty against Conn's if the retailer's conduct financially harmed persons aged 65 or older.

"The defendants are charged with using high-pressure sales tactics to deceive customers about their extended service warranties," Abbott said in a press release.

"Texas law contains important protections to prevent vendors from misleading customers about their goods and services. Today's enforcement action reflects a concerted effort to ensure the defendant is held accountable for violating the law."

Conn's brochures claimed the extended warranties protected purchasers "for a two full years from the date (they) purchased the product."

However, customers did not actually receive two-year warranties. In fact, the replacement warranty agreements stated that they did not apply to any period covered by the manufacturer's warranty, which typically covered one year after purchase. Thus the two-year extended warranty does not begin at the time of purchase as represented by Conn's, the press release states.

In the event a product had to be replaced, the replacement was not covered by the warranty. And if a replacement product failed within the two-year period, it was not covered, despite the defendant's promise to provide replacement coverage "for a full two years," court papers allege.

The state's enforcement action indicates that Conn's failed to provide customers with a copy of the warranty agreement at the time of sale. As a result, purchasers were not adequately informed about exclusions, limitations, cancellation penalties and other provisions governing their warranty agreements.

Court documents show that, at the time of sale, Conn's sales personnel told warranty purchasers that replacement products would be "new, unused" items.

However, the actual terms of the warranty contract provide that the replacement products could be "refurbished" or "rebuilt," rather than the new items customers were promised by Conn's salesmen.

In an effort to increase warranty sales, Conn's instructed sales personnel to rely on high-pressure tactics to "overcome objections" voiced by customers who declined to purchase extended warranties, court papers say.

A Conn's sales manual obtained by state investigators, which was marked "not to be distributed to customers," said salesmen should "create a sense of urgency" and "make (customers) 'live' the service call… this is done by 'painting a picture' in the customers [sic] mind, calling up that sickly feeling we all get in the pit of our stomachs when something goes wrong."

The sales manual also provides a series of scripted responses to customer objections and reminds salesmen that selling more warranties would "maximize" their personal incomes.

Depending on the product, the extended warranties cost anywhere from $100 to $1,000. The commissions from the sale of these warranties accounted for about 5 percent of Conn's $900 million in annual sales revenue, court papers say.

The state's enforcement action seeks civil penalties and a court order prohibiting the Beaumont-based defendant from continuing its unlawful conduct.

Conn's began in Beaumont in 1890, before the Spindletop gusher of 1901, and was owned and operated by the Conn family for 113 years. In 2003, it became a publicly held company. There are 69 Conn's stores in Texas, Louisiana and Oklahoma.

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